BILL ANALYSIS
AB 2940
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Date of Hearing: April 9, 2008
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Ed Hernandez, Chair
AB 2940 (De Leon) - As Amended: April 3, 2008
SUBJECT : Retirement: California Financial Advantage Account
Program.
SUMMARY : Creates the California Financial Advantage Account
Program (CFAAP), under the administration of the California
Public Employees' Retirement System (CalPERS) to provide
retirement savings opportunities to California's private sector
employees. Specifically, this bill :
1)Establishes, under CalPERS, the CFAAP intended to promote
greater retirement savings for Californi private employees in
a convenient, low-cost, and portable manner.
2)Requires CalPERS to offer one or more individual retirement
accounts or annuities (IRAs) to eligible employees or eligible
employers.
3)Defines "eligible employee" to mean a person with an annual
income at or below 400% of federal poverty level.
4)Requires CalPERS to initiate, implement, maintain, and
administer the CFAAP, as specified, including employing staff
and contracting with third-party administrators as necessary.
5)Specifies that administrative expenses are to be paid from
contributions or investment returns, to the extent permitted
under federal law, except for expenditures that are provided
through an appropriation from the Legislature.
6)Requires CalPERS to make reports to the Legislature and to
participating employers and individuals on the status of the
CFAAP.
7)Requires CalPERS to establish a process to allow an employer
to forward employee contributions to the CFAAP through the
Employment Development Department system currently used to
collect payroll taxes.
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8)Requires CFAAP to be designed to allow employers to make
contributions on an employee's behalf or to match an
employee's contribution.
9)Requires CalPERS to obtain the necessary approvals from
federal authorities, as specified, to ensure that the
implementation of the CFAAP does not jeopardize the status of
the existing retirement program for public employees.
10)Indemnifies, from the General Fund, and holds harmless
CalPERS board members and employees, and investment managers
under contract with CalPERS, with regard to any decisions or
actions made in connection with the CFAAP, as specified.
11)Specifies that the CFAAP will only be made available once
CalPERS receives all the approvals it deems necessary.
EXISTING LAW establishes CalPERS to provide pension and health
benefits to a variety of public employees, including state,
local agency, and classified school employees.
Existing federal law provides for tax-qualified retirement plans
and individual retirement accounts or individual retirement
annuities by which private citizens can save money for
retirement.
FISCAL EFFECT : Unknown.
COMMENTS : The following information was provided by the
author's office:
Currently, more than 70 million American workers do not
participate in an employer-sponsored retirement savings plan.
The numbers are more staggering for Californians. Today, six
million California employees, 41% of the state's workforce, work
at a job that does not offer a pension or a retirement savings
plan to supplement Social Security.
As a result, approximately 40% of today's baby boomers rely on
Social Security benefits for more than 90% of their income.
However, Social Security payments alone, which average to $901
per month in California, will not be enough to sustain
Californians in their retirement. This lack of retirement
savings may equate to a higher cost for government services, as
seniors without savings will be more likely to require
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government assistance with housing, medical care and other
necessities.
Particularly, investments in savings accounts from small
business, low-income, and/or short-tenured and transferable
employees are exceptionally low.
Only 48% of part-time workers participate in a retirement
savings plan. Nearly 65% of low-income workers-those earning
less than $40,000-do not participate in employer plans.
Often, complexity and cost on administering retirement systems
prevent many small companies from creating retirement plans for
their employees. A majority of firms with fewer than 500
employees nationwide do not offer retirement savings options.
Moreover, though some workers may currently participate in a
retirement plan, if that worker moves into a new job with a new
business, they often lose access to that same plan. The result
is gap coverage.
Workers today are spending more than they are saving, relying
more on credit, and thus accruing debt and risking their future
financial security. Nationally, the personal savings rate for
individuals has fallen to 0.5 percent of one's income for 2007.
At this rate, even with Social Security benefits, Californians
will not be able to afford retirement.
Our savings habits must change, and even a small monthly
contribution can create a great financial advantage for
Californians. For example, if a 25 year-old saved $100 a month,
or $1,200 annually, with a 6.9% rate of return she would have
$233,474 at age 65.
California workers need a seamless, lifelong retirement savings
system, providing them with the opportunity to build their
assets and help attain their financial stability through a
secure, portable savings account. The California Employee
Savings Program will create an option and system to do so,
supplementing existing savings options for its workers, at no
cost to taxpayers. While a few states have begun assessing
these possibilities, e.g. Washington, Illinois, California would
be the first state in the nation to implement and provide this
opportunity.
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The Committee is informed that the author will be offering
amendments in Committee to change the name of the program from
the CFAAP to the California Employee Savings Program and to
delete the maximum annual income eligibility threshold in order
to create a broader opportunity for employees to participate in
additional investment options.
REGISTERED SUPPORT / OPPOSITION :
Support
New America Foundation (Sponsor)
California Small Business Association
Sacramento Asian Pacific Chamber of Commerce
Small Business California
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957